Netflix: 3 strategies for investing in this streaming giant under pressure

  • Netflix shares have fallen nearly 71% since January.
  • The sharp decline in the number of subscribers continues to put pressure on the company.
  • Long-term investors may want to buy NFLX shares at current discounts.
  • Tools, data and content to help you make better investment decisions try InvestingPro +.

Shareholders of streaming and entertainment giant Netflix (NASDAQ 🙂 have noticed that the value of their investment has fallen by 63.9% in the last 12 months and by almost 71% since the beginning of the year. By comparison, shares of the Vanguard Communication Services Index Fund ETF (NYSE 🙂 have fallen about 26% since the beginning of the year.

Netflix W1

On November 17, NFLX shares exceeded $ 700 and reached an all-time high. But on May 9, they reached a multi-year low of $ 172.30, about 75% less than the record high.

According to the latest metrics, the global video streaming market can grow with a consolidated annual growth rate (CAGR) of more than 21% between 2022 and 2030. Netflix has been the dominant force in streaming video. In the United States, its market share is about 20%.

Update the latest Netflix results

Despite its streaming leadership, Netflix’s revenue growth has slowed since the blockade was lifted. As a result, the communications and media group lost subscribers for the first time in ten years. The management pointed to increased competition, shared passwords and the suspension of its services in Russia as the main factors contributing to the slowdown in growth.

Released by Netflix. April 19. Revenue was $ 7.87 billion, up 9.8% from a year earlier. The company lost 200,000 subscribers in the quarter, well below the previous forecast of 2.5 million additions. Globally, Netflix has more than 221.6 million subscribers, up 6.7% from the first quarter of 2021. Meanwhile, diluted earnings per share fell to $ 3.53 from $ 3.75 at the same time last year.

In its letter to shareholders, the management noted:

“As we seek to accelerate our revenue growth again – by improving our services and more effectively monetizing sharing for multiple households – we will maintain our operating margin at around 20%.”

Netflix expects to lose another 2 million subscribers in the second quarter. Although revenue is expected to reach $ 8.05 billion, management expects dilution of earnings per share of $ 3 for the 2nd quarter.

Prior to the release of the results for the first quarter, shares of NFLX passed from hand to hand about $ 348. At the time of writing, it was hovering around $ 174.80, down about 50%. The market capitalization is currently $ 77.9 billion.

What to expect from Netflix

Among 44 analysts polled by, NFLX shares are rated “neutral” and the average price for 12 months is 335.36 US dollars. Such a step would increase by 91% of the current price. The target range is from 735 to 217 dollars.

Analysts' goals for Netflix shares

Analysts’ goals for Netflix shares


However, according to a number evaluation modelsfor example, those that take into account P / E or P / S multipliers or final values, the average fair value of NFLX shares on InvestingPro is $ 286.83. USA.

InvestingPro valuation models.

InvestingPro valuation models.

Source: Investing Pro

In other words, a fundamental estimate suggests that stocks may rise by more than 63%.

Netflix’s P / E, P / B and P / S ratios are now 15.8x, 4.5x and 2.6x, respectively. Comparable figures for the communications services sector are 6.0x, 1.8x and 1.9x, respectively. These figures suggest that NFLX stocks no longer have a stratospheric value.

We expect NFLX shares to trade in a wide range and create a base of $ 160 to $ 200 in the coming weeks. Then Netflix shares could potentially start a new rise.

Add NFLX stocks to your portfolios
Netflix fans who aren’t worried about short-term volatility may want to consider investing now. Their target price will be $ 286.83, according to valuation models.

Investors may also consider buying an exchange-traded fund (ETF), of which NFLX shares are a part. Examples include:

  • Shares of Vanguard Communication Services Index Fund ETF (NYSE 🙂
  • Invesco Dynamic Media ETF (NYSE 🙂
  • First Trust S-Network Streaming & Gaming ETF (NYSE 🙂
  • Communication services Select Sector SPDR® Fund (NYSE 🙂
  • Invesco NASDAQ Internet Foundation (NASDAQ 🙂

While investors may want to buy NFLX stocks for their long-term portfolios, they may also be nervous about further declines in the coming weeks. Therefore, some may prefer to set up a “protected call for the poor” campaign.

That’s why today we present you diagonal debit mixed trading on Netflix using LEAPS options, where profit potential and risk are limited.

Investors unfamiliar with this strategy may want to review our previous discussion of LEAPS options before reading on. In these articles, we have provided a detailed review of the calculations.

Most option strategies are not suitable for all retail investors. Thus, the following example is offered for educational purposes rather than as an actual strategy for the average retail investor.

Diagonal debit spread on NFLX shares

Price at the time of writing: $ 174.80

The trader first buys a long-term call with a lower strike price. At the same time, it sells a short-term call option with a higher strike price, creating a long diagonal spread.

Thus, call stock options have different exercise prices and different expiration dates. The trader takes one long option and shorts the other to achieve a diagonal spread.

Most traders who adopt this strategy are slightly tuned to the underlying security. Instead of buying 100 NFLX shares, a trader would buy a LEAPS call option with deep money, where this LEAPS call option acts as a “substitute” for stock ownership.

In the first stage of this strategy, a trader can buy a LEAPS deep in the money (ITM) call option, such as the NFLX Jan call option. 19, 2024, 140 strokes. This option is currently available for $ 68.80. Holding this call option, which expires in January 2024, will cost the trader $ 6,880 instead of $ 17,480 to buy 100 shares directly.

The delta of this option is close to 80. The delta indicates the amount of the expected change in the option price based on the change in the underlying security by $ 1.

If NFLX shares rise $ 1 to $ 175.80, the current option price of $ 68.80 should increase by about 80 cents based on the Delta 80. However, the actual change may be slightly higher or lower depending on several other factors. beyond the scope of this article.

In the second phase of this strategy, the trader sells a short-term call option with a small amount of money (OTM), such as the NFLX call on June 17 for 180 movements. The current premium for this option is $ 11.60. The seller of the option will receive $ 1,160 excluding trading fees.

The strategy has two expiration dates, which makes it difficult to determine the exact break-even point formula. Various brokers may offer “profit and loss calculators” for this type of trade.

Maximum profit potential

The maximum potential is realized if the share price is equal to the price of the short circuit on the date of its completion. Therefore, the trader wants the price of NFLX shares to remain as close as possible to the price of the short option (ie $ 180) after the expiration date on June 17, not exceeding it.

Here, the maximum profit, in theory, will be about 1470 US dollars at a price of 180 US dollars at the time of expiration, excluding commissions and trade fees. (We came to this value using the option gains and losses calculator). Without the use of such a calculator, we could also get an approximate cost in dollars.

Naturally, if the exercise price of a long option was different (that is, not $ 140), its delta would also be different. Then we had to use this delta value to get the approximate value of the final profit or loss.

Here, if you do not initially invest $ 17,480 in 100 shares of Netflix, the potential profit of the trader is attracted.

Ideally, a trader expects the NFLX short call to run out of money or become useless. The trader can then sell one call after another until the long NFLX LEAPS call ends in almost two years.

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